Coronavirus explodes worries about flagging economy

Coronavirus explodes concerns about weak economy

Image: jochen zick

The spread of the coronavirus causes crashes on the world’s borders, following a "black monday" the borsen continued to fall on tuesday

Initially, it looked after the global crash on the stock markets on monday, as in the severe financial crisis from 2007 now also "black monday" is called, on tuesday after a recovery in the financial markets from. But soon the indices all turned sharply negative again during the day. Frankfurt’s leading index DAX fell again by 1.9 percent. After significant losses on monday, the lowest level since october 2018 was recorded.

The fear of a further spread of covid-19 and the economic consequences of a coronavirus epidemic had on monday even with more than 4% for the roughest daily loss since the 24. June 2016 provided. That was the day after the majority of britons voted to leave the EU in the referendum.

At that time, absurd horror scenarios had been developed beforehand, but they had no basis in reality. The main purpose of these scenarios was to influence the vote and prevent a majority from voting for a brexit. In fact, this was quickly dismissed at the stock exchanges, because the scenarios lacked any real basis. And so there were not even any major price losses when the brexit was actually implemented on january 31. January was completed in real terms.

On some stock exchanges it looked even more dramatic than in frankfurt on monday and tuesday. The milan stock exchange, because italy is now affected by a particularly large number of coronavirus infections in europe, crashed by as much as 5.4% on monday. On tuesday it went down again by 1.4% percent. In italy, 11 deaths and hundreds of infections have now been reported. Drastic reductions have long been used there as well. Although the madrid borse also plunged about 4%, as in frankfurt on monday, but now the benchmark index ibex 35 is one of the strongest losers, having fallen 2.4% on tuesday more than, for example, frankfurt or milan. This is certainly related to the fact that two new contagions have been registered in tenerife and barcelona, directly related to the spread in italy.

The spanish state has already been directly affected by the economic impact of the coronavirus, whose tourism industry has been severely affected by its spread, much like the perennially crisis-ridden italy. The major trade fair for mobile devices in the catalan metropolis of barcelona has now been canceled after all. The mobile world congress (MWC) was supposed to take place this week. It is the world’s largest exhibition for the mobile industry and actually thousands of exhibitors and about 100.000 visitors from all over the world were expected.

Global economy collapses?

In the meantime, the international monetary fund (IMF) is also predicting that the global economy may grow by up to 0.2 percentage points less this year. However, this can be described as a cautious estimate with which the IMF, unlike its horror scenario for brexit, does not want to create panic, but rather to minimize it as much as possible. Despite everything, IMF chief kristalina georgieva wrote in a blog post that the coronavirus is the "most pressing uncertainty" for the world economy.

However, while optimistically anticipating a significant dip in growth in china in the first quarter, it expects the full-year impact to be minimal. She expects that "the chinese economy will soon regain momentum". But it also caveats that the forecast depends on whether you can quickly contain the spread of covid-19. But it really does not look like that at the moment.

Any statement about possible economic impact depends on whether the spread can be prevented. And at present there is much to suggest that the opposite is more likely to be the case. That is why experts are now becoming increasingly skeptical. In addition to the situation in china, nathalie macdermott, an expert on infectious diseases at the renowned king’s college in london, now considers the situation in italy, south korea and iran to be a serious problem "very worrying". "The window of opportunity for the containment of the outbreak is now closing very quickly", devi sridhar also explains. She leads research at the university of edinburgh on global public health. For dr. Bharat pankhania of the university of exeter is clear that now "all the important ingredients for a pandemic" are present. "It’s better to be honest and say it."

Unlike the brexit, the covid-19 had what it takes in real terms to once again shake up the global economy with an epidemic spreading around the world. In any case, the IMF chief speaks only of a fragile recovery "fragile recovery", which "could be threatened by unforeseen events". She also names the dangers of the simmering trade wars and brexit as further factors of uncertainty. And georgieva does not avoid a warning either. According to her, the spread of the epidemic also had significant consequences for the global economy. The global impact was exacerbated by significant supply chain disruptions and a continued loss of investor confidence, "especially if the epidemic spreads beyond china". This is what she wrote last week about a situation that has long since come to pass.

Supply chain problems

In fact, supply chain problems are already well known on all sides. Apple is probably the most prominent company to admit that it will not reach its sales target, which was confirmed in january, because of the problems.

Daisuke wakabayashi also uses this example to analyze the global impact in the new york times. He describes how factories all over the world have long had to stop production because components are not being supplied. He refers to a forecast by oxford economics, according to which global economic growth was allowed to fall to 2.3 percent in the current year. This would be the weakest growth since the global financial crisis starting in 2008.

Oxford economics even expects the global economy to contract in the first quarter of 2020 if the spread of the epidemic to china can be contained. Here, too, the parallel to the last financial and economic crisis is apparent, as a shrinking global economy has not been observed since then. If the virus spreads into a global pandemic, analysts forecast that the euro zone would plunge into recession. In any case, this can hardly be avoided now that growth in the last quarter narrowly missed stagnation at best. However, oxford economics also expects that despite the robust growth so far (generated by massive debt), the U.S. Will also slip into recession.

In germany, which has been experiencing a crisis in the automotive industry for a long time anyway, and which has repeatedly and officially only just missed a recession in the past year, the chief economist for germany at the italian bank unicredit ames that there are special risks for the automotive industry. In a globalized economy, andreas rees also sees the supply chains as the "achilles’ heel". He believes that no one can seriously quantify the impact at this time, but also ames that the risks for more severe impacts are currently allowed to rise beyond the company’s own forecasts to date. Other observers have also long spoken of a "shock" and the fact that the covid-19 is increasingly taking the "world economy infected".

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